Month: December 2021

Businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service.

An online payment plan for Self-Assessment tax bills can be used to set up instalment arrangements for paying tax liabilities up to £30,000. Taxpayers that qualify for a Time to Pay arrangement using the self-serve Time to Pay facility online, can do so without speaking to an HMRC adviser. The service will create a bespoke monthly payment plan based on how much tax is owed and the length of time needed to pay. The service was used by over 123,000 taxpayers for the 2019-20 tax year to spread the cost of over £460m in tax.

Taxpayers that want to use the online option for their 2020-21 tax return must meet the following requirements:

• have filed their tax return for the 2020-21 tax year
• owe less than £30,000
• be within 60 days of the payment deadline of 31 January 2022
• plan to pay their debt off within the next 12 months or less

Taxpayers with Self-Assessment tax payments that do not meet the above requirements need to contact HMRC to request a Time To Pay arrangement. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.

HMRC will usually offer taxpayers the option of extra time to pay if they think they genuinely cannot pay in full but will be able to pay in the near future. If HMRC do not think that more time will help, then they can require immediate payment of a tax bill and start enforcement action if payment is not forthcoming.

The 'badges of trade' tests whilst not conclusive are used by HMRC to help determine whether an activity is a proper economic trade / business activity or merely a money-making by-product of a hobby.

The approach by the courts in using the badges of trade has been to decide questions of trade on the basis of the overall impression gained from a review of all the badges.

HMRC will consider the following nine badges of trade as part of their overall investigation as to whether a hobby is actually a trade:

• Profit-seeking motive
• The number of transactions
• The nature of the asset
• Existence of similar trading transactions or interests
• Changes to the asset
• The way the sale was carried out
• The source of finance
• Interval of time between purchase and sale
• Method of acquisition

Even if HMRC consider that the activities in question are a trade, taxpayers can make up to £1,000 per year tax-free by claiming the trading allowance.

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home. If you are using this scheme, you should ensure that rents received from lodgers during the current tax year do no exceed £7,500. The tax exemption is automatic if you earn less than £7,500 and there are no specific tax reporting requirements.

The relief only applies to the letting of furnished accommodation and is used when a bedroom is rented out to a lodger by homeowners. The relief also simplifies the tax and administrative burden for those with rent-a-room income up to £7,500. The limit is reduced by half if the income from letting accommodation in the same property is shared by a joint owner of the property.

The rent-a-room limit includes any amounts received for meals, goods and services provided, such as cleaning or laundry. If gross receipts are more than the limit, taxpayers can choose between paying tax on the actual profit (gross rents minus actual expenses and capital allowances) or the gross receipts (and any balancing charges) minus the allowance – with no deduction for expenses or capital allowances.